Market Segmentation Examples and Cost Leadership Strategy

Organizing Your Business Strategy

Your business strategy is based on the decisions you make in managing your company. It can impact your competitive advantage over a period of time and establish your overall brand and future direction for your business. Establishing a form of long term goals, will help you sustain and grow your business over time. Here is an explanation on how to organize your business strategy to work for you.

Characteristics of Your Business Strategy

There are five basic characteristics that your business strategy should include.

1. The direction you want your business to go and how you intend on getting there.
2. An understanding of your overall core competencies and the competencies you will need to develop over time.
3. A look at marketplace demands and real customer needs.
4. How you will gain a sustainable competitive edge.
5. A flexible business strategy that can meet changing demands and growth.

Three Business Strategies You Can Use

The three best strategies think about cost leadership, product differentiation, and market segmentation. Here is a look at each of these in detail and how you can use them in your own business model.

1. Cost Leadership

An example of how this strategy can be successful is by looking at the Wal-mart model. Your company would focus primarily on building a large market share by providing prices lower to competitors. The only issues with this strategy are the lack of loyalty among customers that are price-sensitive.

In order to utilize a cost leadership strategy, you must maintain profitability and a high return on investment. Finding ways for your company to operate efficiently will help to keep costs low and control your operational expenses.

Three ways to achieve cost leadership
1. High Asset Turnover – This is focused on the timeframe your company takes to sell a product. If you are operating in a service based industry, this mindset reflects how quickly you can finish business with one client and move to additional paying clients. This approach requires fixed costs to be spread over a large number of units of each product/service meaning lower unit costs. A business can become advantageous of this strategy when the economies of scale and experience curves take effect.

2. Indirect Operating Costs – The key focus of this strategy is to control costs. This is achieved by offering higher volumes of standard products and limited customization and personalization of service. This will help with keeping production costs low and use fewer components.

3. Supply/Procurement Chain – Accomplished through bulk buying and enjoying quality discounts, squeezing suppliers on price, instituting competitive bidding for contracts, and working with vendors to keep inventories low using Just in Time purchasing or Vendor Managed Inventory.

2. Product Differentiation

This strategy is focused on developing a product that is more unique or better than the competitors. Finding ways to bring higher quality materials, better customer service or an ability to have a unique brand or image can develop your establishment.

Typically, companies that focus on this type of strategy such as Apple, can charge premium pricing since their clientele is more brand loyal and less price sensitive. A negative side to using this strategy is the large amount of advertising money that is spent in establishing your brand or image.

3. Market Segmentation

This strategy picks a single market niche or sub marketing to sell products to. It works primarily in overly saturated marketplaces. An example is in the gift basket industry which is highly competitive. If you choose to operate within that industry, you would choose a product differentiation strategy and combine it with a market segmentation strategy by focusing on high end products for weddings. These baskets may be focused primarily on high end crystal champagne glasses targeted towards the bridge and groom.

Creating Your Strategy in Three Easy Steps

Here are three easy stages to getting your strategy started.

1. Identify the key strategic factors you want your business to be focused on.
2. Utilize strategic analysis tools such as the SWOT, BCG Matrix, or Balanced Scorecard to analyze both the internet and external factors that will influence you.
3. Weigh the attractiveness of the various strategies and decide which of the ones are more advantageous for you to pursue.